During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $64 per unit) $ 1,024,000 $ 1,664,000 Cost of goods sold (@ $37 per unit) 592,000 962,000 Gross margin 432,000 702,000 Selling and administrative expenses* 296,000 326,000 Net operating income $ \136,000\ $ 376,000 * $3 per unit variable; $248,000 fixed each year. The companys $37 unit product cost is computed as follows: Direct materials $ 7 Direct labor 11 Variable manufacturing overhead 2 Fixed manufacturing overhead ($357,000 21,000 units) 17 Absorption costing unit product cost $ 37 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 21,000 21,000 Units sold 16,000 26,000 Required: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year.